Why Sustainable Finance Matters for an Inclusive Transition: The Business Case, Benefits, and Steps to Get Started

Why Sustainable Finance Matters for an Inclusive Transition – body

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Summary

Published 29 November 2024 –

Singapore Fintech Festival 2024 has just wrapped up, and with ESG being a key theme of this year’s gathering and a focus among both private enterprise and policy makers, there is no better time to shine a light on this question of sustainable financing.

With environmental challenges mounting and the expectations of stakeholders rapidly increasing, sustainable finance has become crucial for businesses looking to stay resilient and aligned with new global standards.

Today, sustainable finance isn’t just about niche investments — it’s a foundational approach that weaves ESG considerations into investment and financing decisions across various financial products, making such financing inclusive, even to micro, small, and medium-sized enterprises (MSMEs).

From green bonds to sustainability-linked loans, the scope of sustainable finance is broad and growing. In 2023, sustainable debt issuance surpassed the US$1 trillion mark globally, proving that this is more than a trend — it’s a major shift in how finance works.

As the effects of climate change and social issues intensify, businesses must adopt sustainable finance practices to future-proof their operations and manage climate risks.

Navigating the Urgency of ESG Reporting

The rapid growth of sustainable finance is partly fueled by an upswing in ESG regulations, especially in the Asia-Pacific. Governments and regulators are now enforcing ESG disclosures to drive climate action and sustainable growth.

For instance, the Singapore Exchange (SGX) requires all listed companies to make climate disclosures aligned with the International Sustainability Standards Board (ISSB) by 2025.

Similar requirements are underway in Australia, Hong Kong, Malaysia, and the Philippines, ensuring companies report on emissions and sustainability in ways that are transparent and actionable, with failure to meet these new ESG standards potentially leading to penalties, restricted access to capital, and reduced market share.

While sustainability reporting is not mandated for SMEs, their participation in larger corporate supply chains indirectly exposes them to growing sustainability management demands. The resulting pressure, coupled with limited resources and manpower, highlights the importance of access to sustainable financing for SMEs, to allow them to take action to advance on ESG goals and build business edge, as well as quantify and showcase their commitment to sustainability to relevant stakeholders.

On the other hand, companies aligning with these frameworks benefit from structured insights into their environmental and social impacts, enabling them to respond proactively to changing market demands and regulations.

How Sustainable Finance Creates a Competitive Edge

Embracing ESG in financial and business strategies brings a range of advantages, including higher investor interest, enhanced risk management, and a stronger brand reputation. Sustainable finance has become a magnet for ESG-focused investors who are increasingly prioritising companies with a solid track record of responsibility and resilience. Institutions like the World Bank now require companies to demonstrate credible ESG practices before receiving funding, creating both regulatory and financial incentives to adopt sustainable finance approaches. Beyond compliance, a strong ESG strategy can help companies better anticipate and manage emerging risks. Companies with well-planned environmental strategies are more prepared for climate-related disruptions, while those with sound governance structures are equipped to handle social and operational challenges. Sustainable finance options, such as green bonds or sustainability-linked loans, often tie directly with sustainability performance targets (SPTs), providing businesses with tangible benefits and incentives to achieve ESG goals and high ESG performance. In fact, platforms like ESGpedia are vital for companies and financial institutions integrating ESG into their business and operations, providing transparent data, streamlined reporting, and AI-driven insights, that help businesses and banks stay compliant and respond effectively to the growing demand for sustainable finance.

Navigating the Changing Regulatory Environment

Regulations around ESG are evolving rapidly to emphasise transparency and standardisation.

In many regions, governments and financial regulators have accelerated requirements for corporate ESG disclosures, compelling companies to embed sustainability into their operations and report on them accurately.

Similar requirements to SGX in Singapore are emerging in other Asia-Pacific regions, aligning with global frameworks like ISSB, Task Force on Climate-Related Financial Disclosures (TCFD), and the Global Reporting Initiative (GRI), ensuring consistent reporting standards to reduce “greenwashing” and hold businesses accountable while building trust with stakeholders.

As regulatory scrutiny grows, sustainability reporting is becoming a necessity, not an option. Meeting these standards can help businesses reduce regulatory risks, attract investment, and build trust through a clear, structured approach to ESG metrics.

Key Benefits of Sustainable Finance for Businesses

Adopting sustainable finance doesn’t just check regulatory boxes — it enhances resilience, improves risk management, and opens up financing opportunities:

Stronger Resilience and Risk Management: Sustainable finance helps companies prepare for risks linked to these issues, from climate-related events to supply chain disruptions. Companies with high ESG standards are often better insulated against significant regulatory changes or environmental impacts.
Better Access to Capital: Many sustainable finance products, like green bonds or sustainability-linked loans, are designed to incentivise responsible corporate behavior. Companies meeting ESG performance benchmarks often qualify for favourable loan terms, lower interest rates, or preferential access to capital, offering a clear financial advantage for strong ESG performance.
Enhanced Brand Value and Competitive Position: Companies with a commitment to ESG tend to enjoy a boost in reputation among investors, consumers, employees, and local communities. This reputation boost can lead to increased sales, better employee retention, and stronger business partnerships, as stakeholders increasingly support brands with sustainable values.

Practical Steps to Get Started with Sustainable Finance

Adopting sustainable finance requires a clear step-by-step approach, so here are some practical ways to start:

Define Clear ESG Goals: Set ESG objectives that align with your industry or country’s standards, such as those from GRI, ISSB, or TCFD. This ensures your goals are both meaningful and consistent with global practices.
Data Collection and ESG Reporting: Collecting and managing accurate ESG data is essential. Platforms like ESGpedia can simplify this by providing a streamlined approach to ESG data collection and GHG calculation, and allow companies to report in compliance with international standards.
Engage with Financial Institutions Offering ESG-Linked Products: Many financial institutions offer products linked to specific ESG performance metrics. Engage with these institutions to understand the criteria and determine how your goals align. Verified data and clear objectives increase credibility and attractiveness to ESG-linked financing.
Use Digital Tools for ESG Processes: Digital tools, such as ESGpedia, help companies streamline ESG reporting, harmonise data, and benchmark their performance. This makes ESG data more accessible and actionable, supporting compliance across multiple regulatory regions.

How ESGpedia Supports the Transition to Sustainable Finance

ESGpedia provides essential tools to simplify ESG data collection, reporting, and compliance:

Co-branded portals for Portfolio/Client Ecosystem Engagement: ESGpedia works closely with multiple local and regional banks and financial institutions such as DBS, CIMB, Maybank, OCBC, Public Bank, and Funding Societies, to streamline and actively engage portfolio companies or client ecosystems, enhancing sustainable financing and allowing our partners to advance on their ESG strategies, especially to SMEs with limited resources and sustainability expertise.
GHG Carbon Calculator: ESGpedia’s Carbon Calculator is built in accordance with GHG Protocol and validated under ISO14064 methodologies, localised to all Asia Pacific countries. It supports Scope 1-3 GHG calculation, including various Scope 3 calculation methods, including transaction-based and life cycle approach.
Comprehensive ESG Reporting: ESGpedia allows companies to establish core ESG metrics, create ESG and GHG reports according to international and local standards, and swiftly generate sustainability reports to showcase to stakeholders.
Comprehensive Data Aggregation: ESGpedia consolidates and standardises ESG data, ensuring compliance with local and international standards.
Supply Chain Transparency: It enables companies to assess and report on Scope 3 emissions, enhancing transparency throughout the supply chain.
AI-Driven Insights: ESGpedia’s AI-powered data aggregation and data analytics provide actionable, context-nuanced insights, helping businesses monitor ESG trends, track progress, and make informed decisions.
Verification Options: Third-party verification allows companies to validate their ESG data, meeting the requirements of ESG-linked financial products.
Localised Compliance: ESGpedia partners with regional organisations to help companies meet country-specific reporting mandates, aligning with national sustainability goals.

Accelerating Inclusive Sustainable Financing for Banks and SMEs – Latest Use Cases

Maybank myimpact SME – Maybank launches Maybank myimpact SME – a comprehensive suite of financial inclusivity solutions to accelerate meaningful and impactful growth for SMEs. ESGpedia’s online enabler tool will enable Maybank SME customers in Singapore, Malaysia, Indonesia, Philippines, and Cambodia to calculate their carbon emissions and report core ESG metrics. Read Press Release.

DBS ESG Ready Program – DBS Bank and DBS Bank (Taiwan) launch ESG Ready Program, partnering with ESGpedia to help SMEs strengthen carbon accounting and ESG reporting capabilities through tailored ESG solutions. Read Press Release for DBS Bank. Read Press Release for DBS Bank (Taiwan).

SPARK Reporting Template integration, in collaboration with GRI ASEAN and the Philippines Department of Trade and Industry (DTI) – ESGpedia digitalised the SPARK Template to enable ESG reporting among Filipino SMEs, as part of our partnership with the Sustainable Finance Institute Asia’s SAFE Initiative. This helps boost access to sustainable financing and attract responsible investors. Read Press Release.

Sustainable finance has become a strategic priority, driving compliance, resilience, and growth. As regulatory demands increase and stakeholders expect greater transparency, sustainable finance is essential for companies that aim to succeed over the long term.

The rewards — from managing risk and enhancing brand value to accessing favorable financing — make sustainable finance a powerful tool for building a robust business strategy.

Embracing sustainable finance requires setting clear goals, building solid reporting systems, and leveraging digital platforms. Companies that proactively establish ESG objectives and embrace ESG-linked financing products will not only meet regulatory demands but also gain a competitive edge.

In the future, we believe that companies that are sustainable will be profitable, and profitable companies will be sustainable! Request a demo today.

Embrace the Future of Sustainable Finance with ESGpedia

For companies and SMEs beginning their ESG journey or looking to improve their practices, ESGpedia offers valuable support. Leveraging our digital tools and solutions allows businesses to achieve compliance, strengthen resilience, and tap into the expanding market for sustainable finance.

ESGpedia also helps businesses and the financial sector make informed, data-driven decisions, supporting them in meeting today’s regulatory demands and advancing their sustainability strategies.

Sustainable finance isn’t just about meeting regulatory requirements — it’s about building a more competitive, inclusive, resilient, and sustainable future.

As companies embrace the financial and reputational benefits of ESG, the journey towards sustainable finance becomes a strategic decision that pays dividends now and into the future. ESGpedia is ready to support companies and the financial sector in transforming ESG and compliance challenges into lasting opportunities for growth and leadership! Get in touch to find out more.